PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL-GROWTH BIAS AND PRESENT BIAS

Gopi Shah Goda; Matthew Levy; Colleen Flaherty Manchester; Aaron Sojourner; Joshua Tasoff

doi:10.1111/ecin.12792

PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL-GROWTH BIAS AND PRESENT BIAS

Gopi Shah Goda, Matthew Levy, Colleen Flaherty Manchester, Aaron Sojourner, Joshua Tasoff

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Abstract

In a nationally representative sample, we predict retirement savings using survey-based elicitations of exponential-growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12%. (JEL D91, D14).

Original language	English (US)
Pages (from-to)	1636-1658
Number of pages	23
Journal	Economic Inquiry
Volume	57
Issue number	3
DOIs	https://doi.org/10.1111/ecin.12792
State	Published - Jul 2019

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Publisher Copyright:
© 2019 Western Economic Association International

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PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL-GROWTH BIAS AND PRESENT BIAS

Abstract

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